Glossary of Insolvency Terms – A handy guide for creditors.

PostedDecember, 2018

If you are owed money by a company that is insolvent and have received paperwork from a liquidator, we can help you complete your proof of debt and proxies on a free of charge basis and advise you on your options to ensure you receive the maximum realisation. We have also put together a useful guide to help you navigate through the jargon and abbreviations that are used throughout the profession.

Administration: An Administrator is appointed when a company is insolvent with a view to attempt to rescue the company.

Administrator: The defendant responds to the claim to admit the money is owed. It is possible to file a part of a full admission depending on whether the defendant accepts all the money claimed is owed or if they accept only part of it is owed.

Annulment Order: An Annulment Order cancels the original Bankruptcy Order.

Antecedent Transactions: Insolvency Practitioners will investigate transactions and once a Bankruptcy or Winding up Order has been made with a view to challenging and unwinding transactions that should not have been made. The transactions capable of challenge can range from transactions made at an undervalue to disposing of property after the commencement of insolvency proceedings.

Assets: An item with financial value owned by a company or an individual.

Balance sheet insolvency: Where the assets of the company are worth less than the liabilities.

Bankruptcy: An individual can become bankrupt either by instigation of a creditor or voluntarily if they are unable to pay their debts. A Bankruptcy Order will result in all the Bankrupt’s assets becoming in the control of an Official Receiver or an Insolvency Practitioner.

Bankruptcy Petition: A document that is presented at court by a creditor to commence insolvency proceedings against an individual with a view to obtaining a Bankruptcy Order.

Bankruptcy Order: An Order putting the assets of the Bankrupt in the control of the Official Receiver of an Insolvency Practitioner.

Bankruptcy Restriction Order (“BRO”): If an Insolvency Practitioner or Official Receiver thinks a person subject to a Bankruptcy Order has been dishonest or are to blame for their debts, the court can make a Bankruptcy Restriction Order (“BRO”) against them. This will place restrictions on what they can do for an extended period of time in addition to the set period of restriction resulting from the Bankruptcy Order being made. The extended time for further restrictions will be between 2 and 15 years.

Bankruptcy Restriction Undertaking (“BRU”): A BRU extends the restrictions placed upon you if you are bankrupt. The length of the BRO is the same but certain restrictions continue, usually for between 2 and 15 years. A BRU is often issued in circumstances where there has been director’s misconduct.

Book debt: Book debts are an asset of the company comprising of money owed to the company or individual for good or services provided.

Creditors: A term used to describe a person or a company that is owed money.

Creditors Petition: A creditor can petition for a debtor to be made bankrupt if they are owed a debt over for a fixed sum over £5,000.00. The debt must not be disputed and the debtor must be unable to pay their debts as and when they fall due.

Corporate Voluntary Arrangement: A company formally agrees terms with its creditors for (CVA) settlement of its debts. The arrangement is approved by the court.

Compulsory Liquidation (CVL): A court based process where assets of the company are realised and distributed to creditors. See Bankruptcy above. Debtors’ Petition This is when a debtor decides they wish to make themselves bankrupt and submits a petition to the court.

Debtors: A person or a business that owes money.

Directors Disqualification: A process whereby a person is disqualified from becoming a director of a company. A director can be disqualified for various reasons to include wrongful trading and misconduct. The disqualification will be for a specified period of time.

Dissolution: Dissolution of a company will remove a company from the Companies House Register.

Fraudulent Trading: A Director who continues to trade whilst knowing it is unlikely the business will be able to pay its debts as and when they fall due and therefore potentially defrauding creditors.

Fixed charge: A form of security over a specific asset which required the debtor to consent with the secured creditor when dealing with the asset.

Floating Charge: A form of security that can be given to a creditor over general assets of the company. The assets can change over time for example stock.

Factoring: A company that pays a company for its unpaid sales invoices in advance of the invoice falling due. The factoring company will then collect any invoices that fall overdue on the company’s behalf in exchange for a percentage of each invoice.

Insolvent: A term that describes either a company or an individual who are unable to pay their debts as and when they fall due and therefore they are deemed insolvent.

Insolvency Practitioner (“IP”): A person qualified and licensed to deal with insolvency proceedings.

Income Payments Order (“IPO”): An order where the bankrupt is ordered to pay a portion of their income to the Trustee in Bankruptcy/Insolvency Practitioner.

Income Payments Agreement (“IPA”): This is the same as an Income Payment Order with the exception that the agreement is reached between the Trustee and the debtor without the need for court intervention.

Individual Voluntary Arrangement (IVA): A formal arrangement for individuals who are unable to pay their debts but who wish to avoid Bankruptcy.

Liabilities: A term used to describe the debts or obligations of companies and individuals. Examples include loans, credit card, unpaid invoices.

Limited Liability Company directors: are protected from debts that exceed the paid up value of the shares they own.

Liquidator: A licensed insolvency practitioner.

Liquidation: The process of bringing a business to an end and selling its assets to pay of its debts. Any remaining money will go to the shareholders of the company.

Members Voluntary Liquidation(“MVL”): A solvent company appoints a liquidator to realise the assets of the company and settlement the company’s debts in full. The excess will be distributed amongst the shareholders.

Official Receiver (“OR”): A civil servant in the Insolvency Service and an officer of the court. The court notifies an OR upon the making of a Bankruptcy Order. The OR will take control of the Bankrupts or companies property.

Office Holder: See Official Receiver and Insolvency Practitioner.

Personal Guarantee: A legal promise to repay credit issued to a business for which they are an executive partner.

Partnership Voluntary Arrangement: A formal arrangement between creditors and the partnership, allowing a proportion of the debts owed to be paid over a set period of time.

Proxy: A form that enables a creditor to appoint someone to attend a creditors meeting and vote on their behalf.

Retention of Title: A provision in a contract for the sale of goods that that provides that he title of the goods remains with the seller until payment in full has been made. Other obligations in addition to payment can be made.

Statement of Affairs (“SOFA”): A list of assets and debts compiled in a legal documents supported by a statement of truth.

Statutory Demand: Can be issued by a creditor to a company or an individual as a formal request that a debt must be paid. If the debt is not paid, a Bankruptcy or Winding up Petition can be issued.

Unsecured creditors: Unsecured creditors are those that do not hold a charge over the assets of the company. The fact they do not have security means that are one of the last groups to be reimbursed when a company enters insolvency. The insolvency process will see secured and preferred creditors paid first and any remaining will be shared amongst unsecured creditors.

Winding up Petition: A document that starts proceedings to have the company put into compulsory liquidation.

Wrongful trading: A Director can be held liable for the companies debts if they have knowingly (or reasonably ought to have known) carried on business when there was no prospects of meeting the liabilities of the company as they fell due.

If you are owed money by a company that is insolvent and have received paperwork from a liquidator, we can help you complete your proof of debt and proxies on a free of charge basis. Contact Penny Daisley, Debt Recovery and National Creditor Services Manger on 01727 738246 or by email on ped@debenhamsottaway.co.uk.